shell company
A shell company, also known as a shell corporation, is a company that has no or only nominal business operations and few or no assets. A main feature of a shell company is its ability to conceal the identity of the owner. Shell companies are restricted under U.S. law. For example, they are prohibited from registering the securities that are offered as part of an employee benefit plan, and are considered ineligible issuers that cannot use free writing prospectuses during a registered offering.
Shell companies alone are not illegal, and may be used for legitimate purposes. Shell companies may be used legally to stage a hostile takeover, hold money temporarily, go public with a reverse merger, invest in foreign markets or to simply maintain anonymity. For example, a Special Purpose Acquisition Company (“SPAC”) is a shell company that is formed to raise capital to acquire or merge with a private company.
However, a shell company may also be used for illegitimate purposes. For example shell companies may be used for money laundering, to avoid paying taxes, or generally to facilitate fraud. In 2016, the use of shell companies came under increased public scrutiny with the release of the Panama Papers, which showed a Panamanian law firm's use of shell companies to help wealthy clients conceal their financial activities.
[Last reviewed in February of 2025 by the Wex Definitions Team]
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